Foreign Life Policies: FIF exemption where period from date of original temporary resident visa to end of year of income exceeds four years

Does the taxpayer qualify for exemption under subsection 517(2) of the Income Tax Assessment Act 1936 (ITAA 1936) from the Foreign Investment Fund (FIF) rules where the taxpayer has a temporary resident visa and the period from the issue date of their original visa to the end of the year of income exceeds four years?

No. The taxpayer does not qualify for exemption under subsection 517(2) of the ITAA 1936 from the FIF rules where the taxpayer has a temporary resident visa and the period from the issue date of their original visa to the end of the year of income exceeds 4 years.

The taxpayer resided in Australia, for work purposes and held a temporary residency visa (business sponsored, sub-class 457) which was renewed since being initially granted.

Whilst the taxpayer never applied for permanent residency in Australia and never intended to, for the duration of their stay they were a resident of Australia for taxation purposes.

The taxpayer held a number of foreign life insurance policies (FLPs). The FLPs did not qualify for any of the exclusion provisions identified in section 482 of the ITAA 1936.

The taxpayer's total interest in FLPs exceeded AUD $50,000 in value.

Section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision.

The assessable income of an Australian resident includes statutory income from all sources (subsection 6-10(4) of the ITAA 1997). Section 10-5 of the ITAA 1997 lists certain statutory amounts that form part of assessable income. Included in this list is section 529 of the ITAA 1936, which deals with foreign investment income.

Subsection 529(2) of the ITAA 1936 provides that if foreign investment fund income accrues to a taxpayer in respect of a notional accounting period of a FIF, then, for the income year in which the notional accounting period ended, the taxpayer's assessable income will include: (a) the whole of the foreign investment fund income amount (if the taxpayer is a resident throughout the whole of the notional accounting period), or (b) if the taxpayer was a resident throughout part or parts of the notional accounting period, an amount determined according to the formula set out in subsection 529(2) of the ITAA 1936.

Section 529 of the ITAA 1936 applies subject to section 485 of the ITAA 1936, which sets out when a taxpayer's interest in a FLP will be subject to taxation under the FIF rules.

A taxpayer's interest in a FLP will therefore be subject to attribution under Part XI of the ITAA 1936 unless one of the exemptions to the FIF rules applies.

Section 517 of the ITAA 1936 operates so that even though a taxpayer has an interest in FIFs, the taxpayer will not necessarily be taxed under the FIF measures if they are an exempt visitor. For the purposes of this exemption, subsection 517(2) of the ITAA 1936 provides that the FIF measures will not apply to a taxpayer for a year of income if they are: • a natural person • a resident of Australia in that year of income, and • at the end of the income year all of the following conditions are satisfied: • they have a temporary entry permit granted under the Migration Act 1958 • the period of time from the issue date of their current permit until its expiry date is four years or less, or where their current permit was issued as an extension of an earlier permit the period of time from the issue date of the earliest permit until the expiry date of the current permit is four years or less, and • they are not awaiting the outcome of an application for a permanent entry permit under the Migration Act.

For the purposes of the above tests, a new entry permit issued under the Migration Act as an extension of the original entry permit is considered to be an extension of the original permit.

The test for this exemption is done at the end of the income year, and this exemption cannot be apportioned. At the end of the year of income, the period of time from the issue date of the (original) permit until the expiry date of the permit current at the end of the year of income must be determined.

Given the granting and expiry dates of the taxpayer's temporary residency visa, together with extensions, the taxpayer is not entitled to the exemption afforded by subsection 517(2) of the ITAA 1936 as the period exceeds four years.